Why acquire a recruitment agency?
Business owners operating across all sectors in the recruitment industry are consistently looking at ways to grow. The most common method of growth, but not necessarily the most effective, is organically when it’s achieved by increasing output and enhancing sales internally.
The opposite of this is inorganic growth in the form of mergers and acquisitions. At Connect our focus is helping shareholders achieve this strategy but the question is: Why are agencies acquired?
Securing your market position: Most companies follow the traditional business life cycle and very often acquisitions are made when they are in the mature phase. Once the agency has exhausted all other organic growth options, acquiring market share from a competitor can extend its growth phase to continue a business’ longevity. In addition, to protect the current and future position in the market, owners may acquire a target just so their competitor doesn’t, ensuring they gain the advantage. This strategy allows the acquirer to consolidate their position as a leader in their geographical location, sector, or service offering. A recent example of this is the Italian headquartered global recruitment agency GI Group, expanding their presence in the UK manufacturing sector by acquiring Encore Personnel.
Part of a specific strategy: Known as a buy-and-build scheme, some acquirers use inorganic growth as a specific strategy to grow, looking to make multiple acquisitions every year. One of our previous clients, The Recruitment Group, has made 7 acquisitions to date, building a nationwide group of agencies generating £50million+ in revenue. By acquiring multiple smaller agencies and combining them, the group has benefited from cost savings and cross pollination of clients between the individual entities.
Acquire talent & technology: A persistent struggle that many companies battle with is the ability to attract good talent and invest in worthwhile technology. Unemployment in the UK is low and shortages of particularly skilled workers which can drive agency growth is rife. An acquisition is a quick way to add fee earners to the incumbent company and integrate technology which they don’t have readily available. The most recent high-profile example of this was the acquisition of Bluecrew by the largest blue-collar agency in North America, EmployBridge. Bluecrew is a W-2 workforce-as-a-service platform and their technology will now be made available for EmployBridges temporary work force.
Service/Sector/Geographic expansion: Like acquiring talent, an acquisition can also provide a platform for a buyer to obtain knowledge of a sector or service they don’t have. This is a common driver in acquisition rationale, especially in the recruitment sector where a buyer only offers a service for the supply of permanent personnel and wants to build up a temporary/contract book. A current mandate we are working on is for an American buyer who wants to enter the European market. They have a very limited presence in the UK and need to acquire a well-performing asset with a proven track record that they can leverage to grow their footprint across Europe.
Opportunistic: Some of the transactions we have previously completed at Connect have been made by buyers who were not necessarily looking to acquire but an opportunity presented itself that complimented their existing business and had strong value generation potential. A typical example of this is when a seller is based where the buyer has an existing national client base which requires a local presence to service. If the business was to be acquired, they could then leverage their existing client relationship to win new business at another site. This could then be serviced by the branch with local knowledge and expertise.
In addition to one or multiple of the above, the overall objective of acquiring is to improve both entities and achieve synergies whilst driving down the payback period of making the acquisition.